Most pundits now agree that a big part of the reason for Wachovia’s success after its merger with First Union is that it has taken conventional wisdom in a merger integration and had David Carroll turn it on its head. It may be unconventional in the highest of banking circles (or “uncommon wisdom” as per Wachovia’s slogan), but Wachovia’s emphasis on customer service and retention has certainly proven to be right on target. And, even without rough translation into Spanish, it does seem to make a lot of common sense! According to Carroll, “The best banking strategy is to hold on to your existing customers.”

Led by Ken Thompson as CEO (now also Chairman), the two legacy companies, First Union and Wachovia, proposed a “merger of equals” on September 1, 2001, the resulting Wachovia conglomerate making evident that bigger can be better as it redefines the banking merger paradigm in a new and positive light. David Carroll, co-head of merger integration, explains, “The Wachovia-First Union merger is different from the ground up – utilizing an innovative financing technique, preserving and optimizing the strengths of each legacy company, and making it most important not to lose a single customer while doing so.”

A Merger of Equals – First Union and Wachovia

Just prior to the merger, the standard accounting convention changed from pooling of interest to purchase accounting. As one of the first mergers done under the new method, the legacy companies avoided huge purchase premiums. This was of paramount importance, because it promised the resulting organization two key components to their success, namely time and capital. Says Carroll, “In most large mergers prior to the change, the extraordinary purchase premiums required a rapid fire response of cost cutting and quick-fix revenue synergies. Rapid integration and radical changes resulted, and an average of 15 to 20 percent customer attrition rates resulted.”

“Contrastingly,” Carroll continues, “we had the luxury of time to make thoughtful, methodical plans that would allow us to focus on the processes, products and technology that are vital to keeping our customers happy.” Carroll points out that when companies are forced into rapid integration, “They are so inwardly focused on procedure and platform, that they lose sight of what is most vital to the business.” He adds, “The small mistakes are the ones that cost your business the most in the end. ATM downtime, delayed or missing statements, too aggressively consolidating branches - these are the things that can lose clusters of customers in a heartbeat.”

To avoid these problems, detailed merger integration objectives and processes have laid out a deliberate approach to calculating and monitoring risk management over the whole banking spectrum including customers, systems, operations, employees, financials, regulatory and a host of other concerns. Each department in the resulting company has dedicated members to a task force focusing full-time on the integration process. Says Carroll, “Every week we have a meeting of full time integration staff to calculate ‘warm spots,’ where we attempt to isolate and head off any potential inconvenience to the customer. We categorize events as ‘green, yellow or red’ to mitigate potential problems before they occur.”

Although the attention necessary to pull off Carroll’s level of detail would seem to be very draining, Carroll appears positively charged with excitement. He says, “There is a certain culture of paranoia endemic to the integration process. It is a demanding, humbling experience, but very rewarding when you see the payoff.”

Carroll is quick to point out that in addition to the merger financing logistics, it is the particular combination of the legacy companies’ differences that have made Wachovia’s success possible to this point. The disparate cultures of First Union and Wachovia had raised more than a few eyebrows when the merger was first announced. It was common knowledge at the time that First Union’s “aggressive and entrepreneurial style” had caused some problems for the bank, while Wachovia had a more conservative bent, emphasizing customer service over product. The unification of these entities proved that the whole really is greater than the sum of its parts. First Union’s acquisitions of top-notch networks and full tilt product line, paired with Wachovia’s impeccable reputation and execution, have created a formidable adversary for the big boys “across the street.”

Customer Service Dissolves the After-Buzz

There were plenty of skeptics and naysayers, not to mention competition, after the merger announcement. Sun Trust Banks, Inc., mounted phenomenal efforts involving the legal sparring as well as a highly publicized proxy battle that threatened to prevent the communion of the legacies. Industry experts focused on clashing cultures and threats of “empire building.” Motley Fool’s ‘Fool On The Hill’ report (April 16, 2001) cried, “Big Banking Merger: Investors Beware,” and noted Bankstocks.com analyst Tom Brown even said he “had disagreements with old management of First Union, and … objected vociferously to the old team’s serial dilution practices.”

Now, over two years later, the industry chorus in considerably more melodic. Tom Brown has since recanted in an article entitled “It’s Wachovia Time!” (December 4, 2002) and even given the new company his 2002 ‘Bank of the Year’ award. In March of this year he summed up his enthusiasm with, “The ‘New Wachovia’ Really Is New” (March 4, 2003). Brown explains that Wachovia’s emphasis on customer satisfaction has pulled the company through the integration process, calling the new Wachovia “a competitive juggernaut by any standard.”

This turnaround is understandable. At American Banker’s Retail Best Practices Symposium in March, Thompson’s news was all-good and the numbers undeniable: the merger created the 5th largest bank in the US, and the 1st largest on the East Coast. With customers from over 9 million households and 900,000 businesses, its assets tip the scales at $348 billion, and it has achieved Top 5 national ranking for Capital Management, Wealth Management and Corporate and Investment Banking.

While integrating and managing this behemoth, the bank’s internal customer service scores have actually increased, jumping by 16 percent since the first quarter of 1999, and annual customer attrition has fallen to 12% from 20% four years ago. At the same time, stock performance has improved from (–)56 percent in 1999 to a 19.5 percent increase in total return in 2002. No small feat. Plus, they received a Moody’s credit ranking of Aa3 post-merger. First quarter earnings recently released indicate 2003 net income available to common stockholders of $1.0 billion or 76 cents per share.

Wachovia’s obsessive focus with customer satisfaction has included spending $100 million to retool branches, call centers and operations; adding strict review procedures; establishing channels of feedback from staff and real-time feedback from customers; plus innovative solutions like the providing the first available online check imaging system and customer-friendly collection procedures. The company has scrutinized traffic patterns at all branches and made customer convenience a higher priority than cost cutting, resulting in a minimal 10 percent branch consolidation.

The customer emphasis combined with what Carroll dubs as an “amazing chemistry and compatibility” between the legacy companies, has worked together for the overwhelmingly positive reception from Wall Street and the banking industry. Carroll reports, “We have grown deposits, netted customers, and had sixteen consecutive quarters of improvement.”

Carroll says, “Both legacy companies had been investing heavily in talent, training, information, technology and product prior to the merger, so we were able to compare notes with relative ease.” He adds, “Of course there were differences between the company cultures, and in addition to maximizing the strengths of each, we also looked to reject those that were not going to benefit the end entity. We surveyed our 80,000-plus employees for the strengths and weaknesses of all components, and in so doing were able to lay the framework for a set of core values that we abide by.” Via these core values – integrity, service, teamwork, personal excellence, accountability, value of the individual and winning – the new Wachovia wants to “secure the position of being the best, most trusted and admired company in the financial services industry.”

Wachovia’s new branding, including logos and signage, clearly embraces the “Merging of Equals” paradigm set forth by the integration team. The logo depicts the green of legacy First Union, and the blue of legacy Wachovia, flowing discretely into one another. There is parity between the two, overlaid on the Wachovia blue background. Some compare the identity to a river, some “birds in flight”, some “two interlinking v’s.”

“Uncommon Wisdom” emphasizes the innovative, revolutionary approach that Wachovia takes to customer satisfaction. “Shared Success” implies that without customer success, there can be no Wachovia success. The rollout of new signage has already occurred in Florida and Georgia, with the completion of the Carolinas’ rollout by the middle of this month.

Extending Customer Service to the Baby-Boomers

Wachovia has not been stalled by integration or resting on the laurels of its current success. Carroll has also been responsible for overseeing due diligence for the recently announced plans for Wachovia and Prudential Securities to combine their retail securities brokerage operations to become the country's third-largest brokerage behind Merrill Lynch and Citigroup. The deal is said to create a combined business with client assets of $537 billion, 5.9 million clients and estimated net revenue of $4.2 billion.

Carroll says the Prudential deal is academic. “Because of the incredible tsunami of baby-boomers’ financial assets that will be changing hands, we must be equipped to handle the call. It is a fact that most people prefer a brokerage to manage their financial planning, retirement, 401K and similar issues, and you cannot be a major player in the financial services game unless you are a major player in the brokerage business. We are accelerating at a rate that will put us on an even keel with names like Merrill Lynch, Solomon Smith Barney, and others.”

The brokerage deal should be finalized just as the integration of the new Wachovia enters its final phase in the 3rd quarter of 2003. Although the two undertakings are significant, and temporally very close, Carroll is confident. “We will be using different resources for this deal, and we would never have undertaken it if we had in any way thought that it would compromise our integration with the new Wachovia. It is the right time, and Prudential is the right company.”

Sharing the Success

Since the Wachovia merger and its subsequent success, Wachovia has become a much-touted model for sound and responsible business practices. Businesses trying to overcome the negative publicity and lack of consumer confidence resultant from 2002’s corporate scandals want to contribute to and garner support from the community.

Thompson was tapped by President Bush in December 2002 to join the “Business Strengthening America” campaign. Flanked by the likes of Steve Case of AOL/Time Warner, Michael Eisner of Walt Disney Productions, and Robert Nardelli of Home Depot, Thompson answered the call for corporate citizens to participate in the well-being of their communities.

Thompson provided an op-ed article to the Charlotte Business Journal after attending the event, and shared his enthusiasm for the project. “We have come together in this effort because unique needs exist that government and non-profit agencies cannot meet by themselves.”

Thompson also congratulated the Wachovia team for their contributions and promised to provide them even more incentive to work in the community. “(Our people) coach Little League teams, build Habitat Homes, they are Big Brothers and Big Sisters, and help out with United Way campaigns and Heart Fund drives.” He adds, “We have reached the point where we need to...formalize and structure (these efforts) and to empower employees to reach out to communities.”

The Wachovia merger to-date has been a benefit to its customers as well as the community. With its forthright approach, thoughtful strategies and customer focus, Wachovia continues to invest its knowledge and values into a business community that will surely benefit by its example.In keeping with its uncommon wisdom and shared successes, the inaugural Wachovia Championship, a brand new full-field PGA Tour event debuting at Charlotte’s Quail Hollow Club this month (with a $5.6 million purse, one of the highest on tour), certainly bears witness to its unconventional approaches and sharing of success!